What Will Be Covered in this Review?
In this review, we will be discussing the following information regarding The Principal Financial Group QLAC:
- Product type
- Current rates
- Realistic long-term return expectations
- How it is used
- How it is most poorly used
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If you’re in the midst of planning for your retirement, but you fear that you could run out of money during that time, then you are not alone. Today, one of the biggest worries that retirees and pre-retirees have is not having income when they need it during their golden years.
With today’s uncertain market and economic environment, there are many people who just simply do not know what to do with their money in order to help ensure that they will have an ongoing income in retirement. This is particularly troubling as life expectancy has increased a great deal, and you could end up living for 20 or more years after you say goodbye to your employer (and your steady paycheck).
One strategy that some people have turned to is a method that can provide a guaranteed, regular income, as well as some nice tax benefits, in addition to safety and financial peace of mind. That strategy is to use a deferred income annuity as a Qualified Longevity Annuity Contract, or QLAC.
A QLAC is a deferred annuity that is funded with an investment from a qualified retirement plan or an IRA (Individual Retirement Account). The annuity provides guaranteed monthly income for the remainder of your life – regardless of how long that may be – and, provided that the annuity you choose is in compliance with IRS requirements, it will also be exempt from the RMS (required minimum distribution) rules until the income payouts start (following the set income start date).
QLACs are essentially a strategy that was created by the IRS as a way to allow retirees enjoyment of lifetime income, while at the same time following the Required Minimum Distribution rules of qualified retirement plans and IRA accounts, which typically require that you begin taking income from the account(s) at age 70 1/2.
In other words, prior to July 2014 – when the IRS started making deferred income annuities (DIAs) more accessible to a retirement plan, and in turn, providing you with more options for managing your retirement income – the assets that were used to purchase DIAs were included in the calculation of required minimum distribution amounts. This meant that you had to begin taking income from the DIA at age 70 1/2 – even if you did not need the income stream at that time. And, by taking income payments earlier rather than later, the dollar amount you received would be smaller.
The IRS’s QLAC regulations state that the assets that are held in fixed deferred income annuities (DIAs) that are specifically designated as QLACs, though, are not included in the calculation of one’s required minimum distribution at age 70 1/2. Therefore, you are able to defer your income payments until you actually need them (up to age 85), which in turn, can allow you to defer tax on the gain in the contract, and have a larger dollar amount of income down the road.
However, before you run out and set up an income strategy using a QLAC, there are some things that you need to know – including whether or not the annuity you go with will be the right fit for you.
We can help you in determining this.
Annuity and Retirement Income Planning Information You Can Trust
If this is the first time you have been to our website, then please allow us to personally welcome you to AnnuityGator.com. We are a team of experienced annuity experts who have a primary focus on offering in-depth, and non-biased, annuity reviews. We have been at this for quite a few years now, far longer than our “copycat” competitors. Because of this, we have become known as a highly trusted source of information about annuities.
If you’ve been in the process of researching annuities via the Internet, you may have come across a great deal of conflicting information about these products. This, however, is not entirely shocking, as there are many, many opinions about these financial vehicles floating around out there. This can be even more intensified when discussing a somewhat confusing strategy such as using a QLAC.
While there is a lot of good information out there in the marketplace about annuities, you may have discovered that there are some websites online that will try “luring” you in by making some pretty bold claims about the annuity products that they offer, like:
- Lowest Fees
- Highest income payouts
- Guaranteed income for life
Does this look familiar?
Yet, even though these claims might sound very enticing, it makes it all that much more important for you to really know whether or not they are actually true.
If you have come here in search of more details about The Principal Financial Group QLAC, then you are definitely in the right place. In fact, we dare say that our website is the only place online where you can discover all of the information that you need – which doesn’t just include the good, but also the bad and the ugly. However, knowing the entire picture, we feel, will help you to best determine whether or not this is the right annuity for you and your financial goals.
In order to be perfectly clear, we want to make it known that we do feel that annuities can provide some good benefits – including those that are QLACs. This, however, is really only true if the annuity fits in with your other goals and needs.
So, if you are ready to learn more, let’s dive in!
The Principal Financial Group Qualified Longevity Annuity Contract at a Glance
|Product Name||The Principal Financial Group QLAC|
|Issuer||Principal Financial Group|
|Type of Product||Qualified Longevity Annuity Contract (QLAC)|
|S&P Rating||A+ (Strong)|
|Phone Number||(800) 986-3343|
Opening Thoughts on the Principal Financial Group QLAC
The Principal Financial Group (often simply referred to as The Principal) is a global financial investment management leader that is headquartered in Des Moines, Iowa. Founded in the late 1800s as an insurance company, The Principal has grown and expanded exponentially over the years.
As a member of the Fortune 500, Principal (as of the third quarter of 2017) holds approximately $655 billion in total assets under management and has brought in roughly $1.8 billion in net income as of September 30, 2017.
Because so many people are living longer these days, it is essential to ensure that you have income during your early stages of retirement, as well as many years down the road. In fact, it’s not uncommon for people to live for 20, 30 or more years past their retirement date.
Plus, over time, the prices of the goods and services you need to buy will also likely continue to rise. So, having a larger amount of income in the future will also be a requirement – at least if you want to continue your present lifestyle.
A financial vehicle like the Principal Financial Group’s QLAC can provide you with the opportunity to extend your retirement savings. By purchasing this product, you can take qualified assets such as those that are in a qualified retirement plan or traditional IRA and defer the distribution of at least a portion of those assets beyond age 70 1/2. Thus, you can reduce your required minimum distribution (RMD) until a later date.
In addition to ensuring that you will have more income later in retirement, you can delay paying taxes on money that you simply do not need earlier in your retirement years, which in turn, can give you the potential to leave more assets for a surviving spouse and/or other heirs.
But before you jump up and down with the feeling that this product is the “best of all worlds,” it is essential to make sure that you know how it works, and what you may be giving up in order to attain such benefits.
Before we get into the in-depth details, we have some legal disclosures to present…
This is an independent annuity product review. It is not a recommendation to purchase or to sell an annuity. The Principal has not endorsed this review in any way, nor do we receive any type of compensation for providing this review. This annuity review is meant solely to be an independent review at the request of our readers so that they may see our perspective when breaking down the positives and the negatives of this particular annuity. Prior to committing to the purchase of any type of insurance and/or investment vehicle, it is critical that you do your own due diligence, and that you also talk with a properly licensed professional if you have any questions that relate to your specific situation. All of the names, materials, and marks that have been used in compiling this annuity review are the property of their respective owners.
For more details on how to compare fixed annuities so that you can decide which may be the best one for you, click here in order to obtain our free annuity report.
How The Principal Describes the Principal Financial Group Qualified Longevity Annuity Contract
A Qualified Longevity Annuity Contract, or QLAC, can provide investors with a tax-advantaged “twist” when owning a deferred income annuity (or DIA). Here, you can both delay your income withdrawals beyond age 70 1/2, and can also delay the payment of taxes on a portion of your money that you may not yet need to withdraw as income.
The Principal Deferred Income Annuity as a QLAC – > allows you to set money aside now so that you can have a guaranteed steady stream of income in the future.
According to the Principal’s literature, here is how you can accomplish this:
- By depositing the lesser of $125,000 or 25% of your eligible IRA balance as of December 31st of the prior year (this is the maximum amount of money that can currently be deposited into a deferred income annuity used as a QLAC)
- By making such a deposit prior to your age 82
- By starting to take income from the QLAC no later than the first day of the month that follows the month when you turn age 85
- By selecting either a single or joint income option with either life income or life income with cash refund
You can also opt for a “return of premium” death benefit on this product. This means that your beneficiary (or beneficiaries) can receive payments equal to the annuity premiums you paid in (at least during the deferral period, before the annuity’s income payments begin).
For additional information on how QLACs work, as well as how the Principal Financial Group QLAC works, you can refer to the Principal’s Deferred Income Annuity page HERE.
How an Insurance or Financial Advisor May “Pitch” The Principal Financial Group QLAC
There are few things in life that are nicer than financial guarantees. This is particularly the case when such guarantees come with the assurance that you can count on an income that will last for the remainder of your lifetime – regardless of how long that may be.
With that in mind, it is likely that an insurance or financial advisor who is presenting the Principal Financial Group’s QLAC to you will focus in on the income guarantee, as well as the fact that you can continue to defer your taxable gains for a longer period of time than you otherwise would by keeping funds in a qualified retirement plan and/or a traditional IRA account.
Because income from a QLAC does not need to begin until you are age 85, this can essentially offer nearly 15 extra years of tax deferral – which can definitely add up over time. You can also count on a higher dollar amount of monthly income by waiting a few more years, rather than having to take withdrawals at age 70 1/2 (especially if you really don’t need the money at that time).
However, there are some things that you also need to be aware of, because usually when something sounds too good to be true, it is!
First and foremost, the promised benefits that QLACs can provide may only be achieved if the rules set by the Internal Revenue Service (IRS) are followed. This means a number of things, such as:
- The deferral of only $125,000 or 25 percent of your qualified assets – whichever is less
- Not being able to use IRA money that is in a Roth, or that is from an inherited IRA
- Depositing the money prior to turning age 82
- Only using a deferred income annuity that qualifies as a QLAC
In addition, unlike many other annuities, there is not an inflation protection rider available on the Principal Financial Group QLAC. So, once you start to make your income withdrawals, the dollar amount of your income will remain the same – even as the prices of the goods and services that you need are likely rising.
Also, while there is a death benefit included with this product if death occurs before income payments begin, your named beneficiary could receive a return of the premiums you’ve paid in. However, it is important to understand that the premium that is paid to purchase a deferred income annuity is done in exchange for the receipt of future income – so once this is paid in, you will not have future access to these funds, even in the event of an emergency. This means that you need to be sure that you have other sources of income for meeting short-term expenses, as well as other funds available just in case.
The Annuity Gator’s End Take on the Principal Financial Group QLAC
Where it works best:
While the Principal Financial Group QLAC may not be ideal for everyone, this product could be a viable option for those who:
- Are anticipating a long life
- Require an income source later in life
- Want to ensure that a spouse has guaranteed income later in life
- Want to continue tax-deferred compounding for a longer period of time (beyond RMD requirements)
Where it works the worst:
Conversely, this product may not fare so well for those who:
- Do not anticipate a long life (i.e., who may already have serious health issues)
- Want or need to start taking income at or before age 70 1/2
- Do not intend to use the lifetime income feature
In order to truly know how to compare the best annuity options for you, click here so that you can download our free annuity report.
For those who have been thinking about purchasing a deferred income annuity (DIA) as a QLAC, it is essential that you first get to know the financial vehicle, and determine how it may or may not work well for you and your particular goals and needs.
If the Principal Financial Group QLAC does seem to fit well with your current and future financial plans, then you can definitely be assured that you will receive tax advantages, as well as a guaranteed income stream that you cannot outlive – regardless of how long you may need it.
Even so, though, it is possible that the QLAC annuity from Principal Financial Group may not be the ideal solution, and that an alternative product could be a better option for you. In any case, the only want to truly tell if this financial vehicle may work for you is to have it tested.
We can do this for you, and in turn, can provide you with a spreadsheet of the results. If you are interested in finding out more about the Principal Financial Group QLAC using your specific parameters, then please just let us know and will run the figures for you.
Do You Have Any More Questions on the Principal Financial Group QLAC? Did You Happen to Notice Any Mistakes in this Review?
We realize that this annuity review went a bit long, so we appreciate you sticking with us. However, in this regard, we would much rather that you have too much information on this product than to not have enough. So, if you found this annuity review to be beneficial, please feel free to pass it on and to share it with other people who could also find value in it.
We also understand that, just like with most other financial vehicles, the information on annuities can change frequently. Therefore, if you did happen to notice information in this annuity review that may need to be updated or revised, then please let us know and we will happily make the necessary updates.
And, if this annuity review had caused you to be more confused about how deferred income annuities (DIAs) may be used as QLACs – or, if by reading this review, you were prompted with any additional questions – then please click here and let us know that, too.
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